Rebalancing for Growth: Lazard's Q2 2025 Outlook on Emerging Markets and Global Equity Strategies

In Q2 2025, Lazard's analysis of global and emerging markets reveals a compelling case for strategic portfolio reallocation. The MSCI Emerging Markets Index surged 12.0%, fueled by a weakened U.S. dollar and reduced geopolitical tensions in the Middle East. This momentum, coupled with sector-specific tailwinds in AI-driven technology, positions emerging markets and global equities as key opportunities for investors seeking long-term growth.

Dollar Weakness and Geopolitical Easing: A Tailwind for EMs

The U.S. dollar's decline—falling over 10% from its January 2025 peak—has been a critical catalyst. Traditionally, dollar weakness boosts emerging market equities by improving valuations for dollar-denominated assets and reducing debt burdens. Lazard notes that this trend was amplified in Q2 by the easing of Middle East tensions, which reduced risk-aversion and spurred capital flows into higher-yielding markets. For example, the MSCI Emerging Markets Index outperformed the S&P 500 by 1.5 percentage points, with South Korea and Taiwan leading the charge.

Geopolitical stability also played a role. The U.S.-brokered ceasefire between Iran and Israel in May 2025 removed a major overhang, allowing investors to shift focus to growth opportunities. This environment has made non-U.S. equities more attractive, particularly in regions like Europe and Japan, where structural reforms are gaining traction. Germany's €500 billion infrastructure fund and Japan's NISA reform, which redirects household savings into equities, are reshaping long-term growth trajectories.

AI-Driven Tech Sectors: The New Growth Engine

Lazard's Q2 report underscores the explosive potential of AI-driven technology in emerging markets. South Korea and Taiwan, home to semiconductor giants like Taiwan Semiconductor and SK Hynix, saw their tech sectors surge on strong global demand for AI infrastructure. The Wasatch Emerging Markets Select Fund, which focuses on high-growth tech stocks, outperformed its benchmark with a 12.45% quarterly return.

The firm highlights “Agentic AI” as a transformative force—software capable of replacing human tasks entirely, driving productivity gains across industries. This shift is expected to fuel the next phase of tech cycles, with Lazard launching the Lazard Next Gen Technologies ETF to capture this trend. The ETF's focus on AI infrastructure and automation aligns with the firm's broader “Lazard 2030” strategy, which aims to double revenue by capitalizing on megatrends like energy transition and tech disruption.

Strategic Reallocation: Balancing Risk and Reward

For investors, Lazard's insights suggest a dual approach:
1. Sector Rotation: Overweight high-growth sectors like AI and energy while underweighting cyclical laggards. The firm advises maintaining exposure to tech-heavy emerging markets, where valuations remain attractive (e.g., Japanese equities trade at 15x earnings vs. 25x in the U.S.).
2. Currency Hedging: With the dollar's traditional safe-haven role eroding, investors should hedge against volatility. Lazard recommends using currency derivatives or ETFs like the Lazard Global Equity Franchise to mitigate risks while capturing EM growth.

1. Thematic Investing: Younger investors, in particular, are gravitating toward AI and energy transition themes. Lazard's data shows thematic assets under management (AUM) have doubled in five years, reflecting a shift toward long-term, innovation-driven strategies.

Long-Term Positioning in a Shifting Landscape

While Q2's gains are encouraging, Lazard cautions against complacency. The U.S. economy's drift toward stagflation and China's deflationary risks remain headwinds. However, the firm's “Lazard 2030” strategy emphasizes resilience through diversification. For instance, the firm's hybrid funds and private credit offerings provide alternative income streams to balance equity exposure.

Investors should also monitor U.S. trade policy shifts. While tariffs initially sparked volatility in April, the delayed implementation of retaliatory measures has created asymmetrical opportunities. Non-U.S. firms may benefit from redirected trade flows, particularly from China to Europe and emerging markets.

Conclusion: A Case for Conviction

Lazard's Q2 2025 outlook paints a cautiously optimistic picture for global and emerging equities. The interplay of dollar weakness, geopolitical easing, and AI-driven tech momentum creates a unique window for strategic reallocation. By prioritizing high-conviction positions in AI infrastructure, energy transition, and reform-driven economies, investors can position portfolios to thrive in a structurally shifting global landscape.

As Lazard's data illustrates, the key lies in balancing agility with discipline—leveraging thematic ETFs for diversification while maintaining a long-term focus on innovation and macroeconomic resilience. For those willing to act decisively, the next chapter of global equity growth may well be written in the markets of the developing world.